1. ACC100 | L1 | 1 ACC100 Introductory Financial Accounting Blackboard: https://my.ryerson.ca Porter et al - Ch. 1 Accounting Communication: An Introduction

2. ACC100 | L1 | 2 Course Intro / Admin / Success  Recommendations for success in course Attitude: understand the value … then invest in yourself Seek ‘understanding’; ask questions (‘Why?’) Do the work; prepare in advance; struggle; collaborate ! Read to learn (SQ3R); visualize practical applications !  Course Materials Bb; Course Outline; Instructor presentations; Clickers; A/M  Typical course / class structure & etiquette Sessions; Devices; Questions; Email (do / don’t)  Instructor intro M (I’m normal … why are you so weird?)

3. ACC100 | L1 | 3 Learning Objectives LevelLecture?Description LO 1 Scan Forms of Business LO 2 Scan Types of Business Activities LO 3 U’stand Purpose of accounting; Users & their information needs. LO 4 Master FINANCIAL STATEMENTS (‘F/S’): Purpose of each; how they relate to one another; how to prepare a simple set of F/S LO 5 U’stand Assumptions made in preparing F/S Scan  comprehend vocabulary / terminology Understand  Scan + apply knowledge, perform calculations Master  Understand + analyze / evaluate impact of F/S for decision-making purposes Generally, Lectures introduce the learning objectives you are expected to ‘Master’; hands- on experience with detailed problems occurs in the Break-Out Sessions. M

4. ACC100 | L1 | 4 Identifying Measuring, Analyzing Summarizing, Reporting What is Accounting? LO 3 M various users Economic Information about an Entity communicating decisions ? A system & process for...

5. ACC100 | L1 | 5 Financial Statements (‘F/S’)  Financial Statements are _______ from ___________ to external users which summarize the entity’s __________ during a period, and its financial position (resources & obligations) at the end of that period.  A supporting Accounting Information System captures relevant financial information in detail.  F/S report financial information about an entity so users can make informed ________________ i.e. mostly about “allocating resources” to the entity, or not M

6. ACC100 | L1 | 6 A model of a business entity & its activities provides a frame of reference for the need and usefulness of financial accounting: ( refer to Brad’s “Supplementary Lecture Notes ACC100-1” ) PERSPECTIVE: business entity purpose intent activities transaction stakeholders external users shareholders agency problem financial decisions performance resources reporting: F/S Key Business Concepts essential for Understanding Financial Accounting & F/S $ M

7. ACC100 | L1 | 7 4 Fundamental Financial Statements 1. Income Statement Reports the ___________________ for a specific period of time Revenues, expenses, profit (loss) [one element of “performance”] 2. Balance Sheet Reports the _______________ at a specific date Assets, liabilities, shareholders’ equity LO 4 M

8. ACC100 | L1 | 8 4 Fundamental Financial Statements 3. Cash Flow Statement Reports the _________________ of transactions by type of activity for a specific period of time Cash receipts & disbursements (payments) 4. Statement of Retained Earnings Reports the _________ in retained earnings for a specific period of time e.g. net income, dividends LO 4 M

9. ACC100 | L1 | 9 Overview of basic contents of Fundamental F/S (in articulating order) [also refer to “Supplementary Lecture Notes ACC100-1, p.5] LO 4

10. ACC100 | L1 | 10 Income Statement to Statement of Retained Earnings LO 4 M

11. ACC100 | L1 | 11 Key Elements of Income / ‘Net Income’ REVENUES  Def’n: inflows of assets in exchange for providing goods or services  Principle: Revenue Recognition – revenue should be recognized when earned (goods delivered, services performed)  Examples: Sales Fees, Commissions Rent, Interest EXPENSES  Def’n: outflows representing costs of assets or other resources consumed in providing goods / services  Principle: Matching – expenses s/b recognized by matching them to the revenues they help to generate  Examples: Cost-of goods sold Salaries & wages Amortization (depreciation) LO 4 M

12. ACC100 | L1 | 12 Statement of Retained Earnings to Balance Sheet (Equity section, current period-end) from Income Statement Note the ‘flow’... this is a ‘Continuity Formula’ LO 4 M

13. ACC100 | L1 | 13 What exactly is ‘Retained Earnings’ ?  _________ to an entity’s Owners (e.g. shareholders)   part of Owners’ Equity Formula Explanation: +  of all Net Incomes or Profits to-date (“Total Earnings”) −  of all Dividends to-date (“Earnings paid out or distributed”) = Earnings retained in the business (“Undistributed earnings”)  a source of financing to help fund future growth LO 4 M

14. ACC100 | L1 | 14 Balance Sheet: A Snapshot of ‘Financial Position’ = LIABILITIES OWNERS’ EQUITY (or Shareholders' Equity) + Share Certificate ASSETS “Basic Accounting Equation” point in time

15. ACC100 | L1 | 15  Remember ! The two sides of the Accounting Equation, represented by the Balance Sheet, MUST balance ! A = L + E “Basic Accounting Equation” M

16. ACC100 | L1 | 16 Balance Sheet from Statement of Retained Earnings from Cash Flow Statement changes to Cash Flow Statement (Investment section) changes to Cash Flow Statement (Financing section) LO 4 M

17. ACC100 | L1 | 17 Key Elements of ‘Financial Position’ ASSETS  Def’n: _________ controlled by the entity as a result of past events / transactions, and from which the entity expects to derive _______________ ________ (i.e. able to generate revenue or reduce costs, resulting in more favourable cash flow!) [CICA/HB: Part I – Conceptual Framework; Part II §1000]  Attributes: controlled (usually owned, but not necessarily) by the entity may be tangible (e.g. physical item) or intangible (e.g. legal rights)  Examples: Cash Accounts Receivable Inventories Prepaid Expenses LO 4 M Equipment Buildings, property Licenses, franchise rights, patents Investment in other businesses

18. ACC100 | L1 | 18 Key Elements of ‘Financial Position’ LIABILITIES  Def’n: present _____________ of the entity arising from past events, which is expected to be _________________ by an outflow of resources from the entity [CICA/HB: Part I – Conceptual Framework; Part II §1000]  Attributes: owed to third parties (external) may be settled in cash, goods or services  Examples: Accounts Payable Accrued Liabilities Salaries & Wages Payable Taxes Payable LO 4 M Loan Payable Mortgage Payable

19. ACC100 | L1 | 19 Key Elements of ‘Financial Position’ EQUITIES (Owners’ Equity; Partners’ Equity; Shareholders’ Equity)  Def’n: the _________ interest in the assets of an entity, after settling (deducting) all its liabilities [CICA/HB: Part I – Conceptual Framework; Part II §1000]  Attributes: belongs to owners (e.g. shareholders in the case of a corporation) NOT synonymous with value / worth of an enterprise distributed (i.e. paid out) to shareholders most commonly as dividends  Comprised primarily of: Share Capital (e.g. Common Shares) Retained Earnings LO 4 M

20. ACC100 | L1 | 20 Cash Flow Statement to Balance Sheet from Income Statement from Balance Sheet: (L/T Assets section) (L/T Liabilities & Equity sections) Note the ‘continuity flow’ M Indicates cash receipts and cash disbursements by the entity for the period; organized (‘classified’) into 3 activities LO 4

21. ACC100 | L1 | 21 CQ 1-1 How are the financial statements interconnected ? A. Income Statement to Balance Sheet to Cash Flow Statement to Statement of Retained Earnings B. Income statement to Statement of Retained Earnings to Balance Sheets to Cash Flow Statement C. Income Statement to Statement of Retained Earnings to Cash Flow Statement to Balance Sheet D. Balance Sheet to Statement of Retained Earnings to Income Statement to Cash Flow Statement E. I am still not sure about the connection between the statements. LO 4

22. ACC100 | L1 | 22 CQ 1-2 An entity’s Income Statement reports... A. the cash consequences of the entity’s transactions for a specific period of time B. the results of operations for a specific period of time C. the entity’s financial position at a specific date D. both B & E are correct E. revenues, expenses and the resulting profit (loss) for a specific period of time LO 4 M

23. ACC100 | L1 | 23 Accounting Equation (Basic) A = L + E Alternate Interpretations Assets = Liabilities + Equities This equality is reflected in the Balance Sheet. Controlled (owned) = Owed to 3 rd parties + Owners’ interest Resources = Obligations (financed by debt) + Residual (financed by equity) M

24. ACC100 | L1 | 24 CQ 1-3 Which of the following are accurate re-arrangements of the Basic Accounting Equation for a corporation... A. Assets = Liabilities + Shareholders’ Equity B. Shareholders’ Equity = Assets - Liabilities C. Liabilities = Assets - Shareholders’ Equity D. All of the above E. None of the above LO 4

25. ACC100 | L1 | 25 CQ 1-4 To see an example of this re-arranging, think about what would be true if Assets = 10, Liabilities = 7 and Shareholder’s Equity = 3! Now which of the following equations is / are correct ? A. 10 = 7 + 3 B. 3 = 10 - 7 C. 7 = 10 - 3 D. All of the above E. None of the above LO 4

26. ACC100 | L1 | 26 Applying the Basic Accounting Equation [1] A = L + E We can use this equation for solve for unknowns; for example... Assets $1,000 = Liabilities $600 + Shareholders’ Equity ? What is the ending amount of Shareholders’ Equity ? (Discuss with an elbow partner if necessary) Re-arranging... Shareholders’ Equity = $1,000 - $600 = $400. Check by substituting into original equation: $1,000 = $600 + $400

27. ACC100 | L1 | 27 Applying the Basic Accounting Equation [2] A = L + E We can use this equation for solve for unknowns; for example, assume we start a year with the position just determined... Assets $1,000 = Liabilities $600 + Shareholders’ Equity $400 If, during the year, assets increased $250 by and liabilities decreased by $100, what is the new ending amount of Shareholders’ Equity ? (Discuss with an elbow partner if necessary)

28. ACC100 | L1 | 28 CQ 1-5 At the beginning of the year, Assets = $1,000, Liabilities = $600 and Shareholders’ Equity = $400. During the year, Assets increased by $250 and Liabilities decreased by $100. The new balance of Shareholders’ Equity at the end of the year is... A. $150 B. $350 C. $750 D. $1250 E. Did not have time to finish / I’m lost. Here’s how we got this: Re-arranging... Shareholders’ Equity = $1,250 - $500 = $750. Check by substituting into original equation: $1,250 = $500 + $750

29. ACC100 | L1 | 29 Deconstructing the solution to CQ 1-5 A = L + E The accounting equation must always balance. Furthermore, ALL CHANGES to the equation must be in balance*. Beginning of year Assets $1,000 = Liabilities $600 + S/Hs’ Equity $400 * Modern computerized Accounting Information Systems will not even process a transaction that is not balanced ! Changes during year + $250 = - $100 + ??? End of year Assets $1,250 = Liabilities $500 + S/Hs’ Equity $750

30. ACC100 | L1 | 30 For Next Class 1. If you have not already done so … purchase the textbook, i>Clicker 2 & Royal Calculator for the Break-Out session! Register for APLIA and attempt the first assignment (ungraded). 2. Read Chapters 1 & 2! 3. Before next Tuesday complete the Pre-Lecture Quiz on APLIA!

31. ACC100 | L1 | 31 Appendix Attached are a set of financial statements that students can use as a sample of how financial statements should be prepared.

32. ACC100 | L1 | 32 Income Statement  Note the standard details in the HEADING (Entity name, Statement type, Period or date)  Note “comparative” form  Subtract EXPENSES from REVENUES to determine EARNINGS (i.e. Net Income or Net Loss)  “Net” Income is always after income taxes  Connect this I/S to the Statement of R/E Appendix – Sample F/S [1] M

33. ACC100 | L1 | 33 Statement of Retained Earnings  Note the standard details in the HEADING (Entity name, Statement type, Period)  This is a “continuity” statement – what does that mean?  The current year’s beginning balance comes from the prior year’s ending balance  Net income increases R/E, while Dividends reduce R/E. Appendix – Sample F/S [2] M  Connect this Statement of R/E to the B/S

34. ACC100 | L1 | 34 Balance Sheet  Note the standard details in the HEADING (Entity name, Statement type, Date – not period)  Note “comparative” form  Can you connect this B/S to the Cash Flow & R/E?  This sample B/S is not “classified” between Current / Non-current  How do you interpret the “Total shareholders’ equity” of $20,400 in 2010? Appendix – Sample F/S [3] M

35. ACC100 | L1 | 35 Cash Flow Statement  Note the standard details in the HEADING (Entity name, Statement type, Period)  This C/F Statement is “classified” by activities as a result of grouping various items of cash inflows [positive numbers] & cash outflows [negative numbers (shown in round brackets)]  Net cash flow = sum of the subtotals for the 3 activities Appendix – Sample F/S [4] M